GTE Admits Contracting Mistakes

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GTE Admits Contracting Mistakes

LOS ANGELES – GTE Corp. acknowledged on Thursday it had uncovered "breakdowns" by staff bidding for contracts after The Los Angeles Times alleged the phone giant had wooed big Hollywood contracts by giving away millions of dollars worth of free communications services.

The newspaper, publishing the results of a 10-month-long investigation, said GTE allegedly violated state utility regulations by giving away fiber optic and other high-tech communications services to Hollywood notables in the hope of winning big contracts in the entertainment industry.

GTE declined to confirm details, but said it had voluntarily alerted California regulators after an internal investigation uncovered "breakdowns in judgment" by local staff handling contracts between 1995 and mid-1998.

The paper said the Irving, Texas-based phone giant provided freebies to, among others, director Steven Spielberg and his Dream Works SKG movie studio; Creative Artists Agency, a leading Hollywood talent firm; and the University of California at Los Angeles. Several other companies related to the entertainment industry also benefited from GTE's largess, the paper said.

GTE is completing its merger with Bell Atlantic Corp. The new company will be known as Verizon Communications.

Favoritism and freebies for key clients are common in many industries but are prohibited in California's regulated local phone markets, the newspaper said, adding that the state's

Public Utilities Commission (PUC) was investigating.

The Times said GTE was negotiating with the PUC and would likely be fined several million dollars.

GTE spokesman Bill Kula said the company was still talking with the PUC about potential punitive action, but that any word of fines was speculative.

GTE reported the infractions to the PUC in 1998, he said.

"We discovered that there had been a number of process breakdowns and blatant breakdowns in judgment. These involved business contracts dating from back to 1995 to mid 1998," he told Reuters.

Kula said the fact that GTE voluntarily disclosed the results of its internal investigation to the PUC demonstrated its commitment to California's utility regulations.

The contracts in question covered only a tiny percentage of GTE's $3.5 billion of annual California revenues, Kula said.

"There was disciplinary action taken against a small number of employees in California," he said.

The Los Angeles Times quoted unnamed GTE employees familiar with the case as saying about a dozen of the company's Southern California workers, including two branch managers, lost their jobs last year because of contracting violations, and several dozen others were either demoted or reprimanded.

Kula declined to confirm specifics of The Los Angeles Times story, including the names of the Hollywood customers or the number of employees disciplined or fired.

The newspaper said its own investigation, carried out over a period of 10 months, showed that GTE provided free videoconferencing and high-speed communications services in hopes of landing big Hollywood contracts after the company invested heavily to build a high-speed, high-capacity video transmission network expressly to tap the booming entertainment business.